Commercial banks, SACCO’s microfinance institutions, and digital lenders are in the process of transitioning into Risk-based Credit pricing framework as a regulatory requirement. Kenyans whose credit scores are below the minimum required by lending institutions for loan consideration are, however, faced with a decision of having to borrow at a higher cost compared to those with credit scores are above average.
Banks use credit scores to determine the risk premium to be assigned to customers. The score is developed from the behaviour pattern (credit history) of credit data provided to Credit Reference Bureaus (CRBs).
Several ways to improve your score include repaying loans on time and keeping the debt range low, depending on your income.
Metropol CRB’s Credit Score, better known as Metro-Score, ranges from 200 to 900, where a score of less than 400 indicates that the person to whom the score refers is in some form of default with at least one lender.
The following are some of the primary ways to improve your credit score:
•Monthly loan and debt repayment on time before the due date.
•Keep an open line of communication and arrange for repayment arrangements when experiencing financial difficulty with the creditor.
•Limiting the number of credit card applications is a sure way of never extending your credit amount.
•Not going over the top while spending is the wisest of decisions one can take while trying to improve your credit score.
•It is not always advisable to close a credit account that is not being used since it can lower a person’s credit score.
You can check your credit score by downloading Metropol Crystobol App from Google Play Store/App Store or by dealing *433#.
How Credit Score is Calculated
Credit Score is calculated using mathematical models developed from the behavior patterns of credit data provided to CRB.
The formula looks at variables such as outstanding balances, total available credit, late payments, and the age of the credit account.
Traceability factors are also considered to ensure improved chances of recoverability in default.
The more traits you share with people who have proven reasonable credit risks, your score is higher. It uses payment performance, amount of debt, and other characteristics to assess a borrower’s creditworthiness.
An excellent score will make a borrower more attractive to Lenders and give access to cheaper loans in terms of interest rates, fees, and commissions.